[G.R. No. 121867.

July 24, 1997]

SMITH KLINE & FRENCH LABORATORIES, LTD., petitioner, vs. COURT OF APPEALS, BUREAU OF
PATENTS, TRADEMARKS AND TECHNOLOGY TRANSFER and DOCTORS PHARMACEUTICALS, INC.
respondents.
DECISION
DAVIDE, JR., J.:
This is an appeal under Rule 45 of the Rules of Court from the decision[1] of 4 November 1994 of the Court
of Appeals in CA-G.R. SP No. 33520, which affirmed the 14 February 1994 decision[2] of the Director of the
Bureau of Patents, Trademarks and Technology Transfer (BPTTT) granting a compulsory non-exclusive and
non-transferable license to private respondent to manufacture, use and sell in the Philippines its own brands
of pharmaceutical products containing petitioners patented pharmaceutical product known as Cimetidine.
Petitioner is a foreign corporation with principal office at Welwyn Garden City, England. It owns Philippine
Letters Patent No. 12207 issued by the BPTTT for the patent of the drug Cimetidine.
Private respondent is a domestic corporation engaged in the business of manufacturing and distributing
pharmaceutical products. On 30 March 1987, it filed a petition for compulsory licensing[3] with the BPTTT
for authorization to manufacture its own brand of medicine from the drug Cimetidine and to market the
resulting product in the Philippines. The petition was filed pursuant to the provisions of Section 34 of
Republic Act No. 165 (An Act Creating a Patent Office Prescribing Its Powers and Duties, Regulating the
Issuance of Patents, and Appropriating Funds Therefor), which provides for the compulsory licensing of a
particular patent after the expiration of two years from the grant of the latter if the patented invention relates
to, inter alia, medicine or that which is necessary for public health or public safety. Private respondent
alleged that the grant of Philippine Letters Patent No. 12207 was issued on 29 November 1978; that the
petition was filed beyond the two-year protective period provided in Section 34 of R.A. No. 165; and that it
had the capability to work the patented product or make use of it in its manufacture of medicine.
Petitioner opposed, arguing that private respondent had no cause of action and lacked the capability to work
the patented product; the petition failed to specifically divulge how private respondent would use or improve
the patented product; and that private respondent was motivated by the pecuniary gain attendant to the
grant of a compulsory license. Petitioner also maintained that it was capable of satisfying the demand of the
local market in the manufacture and marketing of the medicines covered by the patented product. Finally,
petitioner challenged the constitutionality of Sections 34 and 35 of R.A. No. 165 for violating the due process
and equal protection clauses of the Constitution.
After appropriate proceedings, the BPTTT handed down its decision on 14 February 1994, with the
dispositive portion thereof providing:
NOW, THEREFORE, by virtue of the powers vested in this Office by Republic Act No. 165, as amended by
Presidential Decree No. 1263, there is hereby issued a license in favor of the herein [private respondent],
United Laboratories, Inc., [sic] under Letters Patent No. 12207 issued on November 29, 1978, subject to the
following terms and conditions:
1. That [private respondent] be hereby granted a non-exclusive and non-transferable license to manufacture,
use and sell in the Philippines its own brands of pharmaceutical products containing [petitioner's] patented
invention which is disclosed and claimed in Letters Patent No. 12207;
2. That the license granted herein shall be for the remaining life of said Letters Patent No. 12207 unless this
license is terminated in the manner hereinafter provided and that no right or license is hereby granted to
[private respondent] under any patent to [petitioner] or [sic] other than recited herein;

3. By virtue of this license, [private respondent] shall pay [petitioner] a royalty on all license products
containing the patented substance made and sold by [private respondent] in the amount equivalent to TWO
AND ONE HALF PERCENT (2.5%) of the net sales in Philippine currency. The term "net scale" [sic] means
the gross amount billed for the product pertaining to Letters Patent No. 12207, less -(a) Transportation charges or allowances, if any, included in such amount;
(b) Trade, quantity or cash discounts and broker's or agent's or distributor's commissions, if any, allowed or
paid;
(c) Credits or allowances, if any, given or made on account of rejection or return of the patented product
previously delivered; and
(d) Any tax, excise or government charge included in such amount, or measured by the production sale,
transportation, use of delivery of the products.
In case [private respondent's] product containing the patented substance shall contain one or more active
ingredients admixed therewith, said product hereinafter identified as admixed product, the royalty to be paid
shall be determined in accordance with the following formula:
Net Sales on
Value of Patented
ROYALTY = Admixed Product x 0.025 x
Substance
Value of Patented
Value of Other
Substance
Active Ingredients
4. The royalties shall be computed after the end of each calendar quarter to all goods containing the
patented substance herein involved, made and sold during the precedent quarter and to be paid by [private
respondent] at its place of business on or before the thirtieth day of the month following the end of each
calendar quarter. Payments should be made to [petitioner's] authorized representative in the Philippines;
5. [Private respondent] shall keep records in sufficient detail to enable [petitioner] to determine the royalties
payable and shall further permit its books and records to be examined from time to time at [private
respondent's] premises during office hours, to the extent necessary to be made at the expense of [petitioner]
by a certified public accountant appointed by [petitioner] and acceptable to [private respondent].
6. [Private respondent] shall adopt and use its own trademark or labels on all its products containing the
patented substance herein involved;
7. [Private respondent] shall comply with the laws on drugs and medicine requiring previous clinical tests and
approval of proper government authorities before selling to the public its own products manufactured under
the license;
8. [Petitioner] shall have the right to terminate the license granted to [private respondent] by giving the latter
thirty (30) days notice in writing to that effect, in the event that [private respondent] default [sic] in the
payment of royalty provided herein or if [private respondent] shall default in the performance of other
covenants or conditions of this agreement which are to be performed by [private respondent]:
(a) [Private respondent] shall have the right provided it is not in default to payment or royalties or other
obligations under this agreement, to terminate the license granted to its, [sic] giving [petitioner] thirty (30)
days-notice in writing to that effect;

(b) Any termination of this license as provided for above shall not in any way operate to deny [petitioner] its
rights or remedies, either at laws [sic] or equity, or relieve [private respondent] of the payment of royalties or
satisfaction of other obligations incurred prior to the effective date of such termination; and
(c) Notice of termination of this license shall be filed with the Bureau of Patents, Trademarks and
Technology Transfer.
9. In case of dispute as to the enforcement of the provisions of this license, the matter shall be submitted for
arbitration before the Director of Bureau of Patents, Trademarks and Technology Transfer or any ranking
official of the Bureau of Patents, Trademarks and Technology Transfer duly delegated by him;
10. This License shall inure to the benefit of each of the parties herein, to the subsidiaries and assigns of
[petitioner] and to the successors and assigns of [private respondent]; and

We find that the granting of compulsory license is not simply because Sec. 34 (1) e, RA 165 allows it in
cases where the invention relates to food and medicine. The Director of Patents also considered in
determining that the applicant has the capability to work or make use of the patented product in the
manufacture of a useful product. In this case, the applicant was able to show that Cimetidine, (subject
matter of latters Patent No. 12207) is necessary for the manufacture of an anti-ulcer drug/medicine, which is
necessary for the promotion of public health. Hence, the award of compulsory license is a valid exercise of
police power.
We do not agree to [sic] petitioners contention that the fixing of the royalty at 2.5% of the net wholesale price
amounted to expropriation of private property without just compensation.
Paragraph 3, Section 35-B, R.A. No. 165, as amended by P.D. No. 1267, states:
SEC. 35-B. Terms and Conditions of Compulsory License.

11. This license take [sic] effect immediately.[4]

Petitioner then appealed to the Court of Appeals by way of a petition for review, which was docketed as CAG.R. SP No. 33520. Petitioner claimed that the appealed decision was erroneous because:
I
... [IT] VIOLATES INTERNATIONAL LAW AS EMBODIED IN THE PARIS CONVENTION FOR THE
PROTECTION OF INDUSTRIAL PROPERTY AND MUST ACCORDINGLY BE SET ASIDE AND MODIFIED.
II
... [IT] IS AN INVALID EXERCISE OF POLICE POWER.
III
CONCEDING ARGUENDO THE QUESTIONED DECISIONS VALIDITY, THE BPTTTS
PRONOUNCEMENT FIXING THE ROYALTY AT 2.5% OF THE NET WHOLESALE PRICE IN PHILIPPINE
CURRENCY WAS RENDERED WITHOUT ANY FACTUAL BASIS AND AMOUNTS TO EXPROPRIATION
OF PRIVATE PROPERTY WITHOUT JUST COMPENSATION WHICH IS VIOLATIVE OF THE
CONSTITUTION.
IV
... [IT] SHOULD NOT HAVE PROCEEDED TO DECIDE THE CASE BELOW FOR FAILURE OF PRIVATE
RESPONDENT TO AFFIRMATIVELY PROVE THE JURISDICTIONAL FACT OF PUBLICATION.[5]
In its decision of 4 November 1994,[6] the Court of Appeals affirmed in toto the challenged decision. We
quote its findings and conclusion upon which the affirmance is anchored, viz.:
An assiduous scrutiny of the impugned decision of the public respondent reveals that the same is supported
by substantial evidence. It appears that at the time of the filing of the petition for compulsory license on
March 24, 1987, the subject letters Patent No. 12207 issued on November 29, 1978 has been in effect for
more than two (2) years. The patented invention relates to compound and compositions used in inhibiting
certain actions of the histamine, hence, it relates to medicine. Moreover, after hearing and careful
consideration of the evidence presented, the Director of Patents ruled that - there is ample evidence to
show that [private respondent] possesses such capability, having competent personnel, machines and
equipment as well as permit to manufacture different drugs containing patented active ingredients such as
ethambutol of American Cyanamid and Ampicillin and Amoxicillin of Beecham Groups, Ltd.
As to the claim by the petitioner that it has the capacity to work the patented product although it was not
shown that any pretended abuse has been committed, thus the reason for granting compulsory license is
intended not only to give a chance to others to supply the public with the quantity of the patented article but
especially to prevent the building up of patent monopolities [sic]. [Parke Davis v. Doctors Pharmaceuticals,
Inc., 14 SCRA 1053].

(3). A compulsory license shall only be granted subject to the payment of adequate royalties commensurate
with the extent to which the invention is worked. However, royalty payments shall not exceed five percent
(5%) of the net wholesale price (as defined in Section 33-A) of the products manufactured under the license.
If the product, substance, or process subject of the compulsory license is involved in an industrial project
approved by the Board of Investments, the royalty payable to the patentee or patentees shall not exceed
three percent (3%) of the net wholesale price (as defined in Section 34-A) of the patented commodity and/or
commodity manufactured under the patented process, the same rate of royalty shall be paid whenever two
or more patents are involved, which royalty shall be distributed to the patentees in rates proportional to the
extent of commercial use by the licensee giving preferential values to the holder of the oldest subsisting
product patent.
The foregoing provision grants the Director of Patents the use of his sound discretion in fixing the percentage
for the royalty rate. In the instant case, the Director of Patents exercised his discretion and ruled that a rate
of 2.5% of the net wholesale price is fair enough for the parties. In Parke Davis & Co. vs. DPI and Tiburcio,
[L-27004, August 6, 1983, 124 SCRA 115] it was held that - liberal treatment in trade relations should be
afforded to local industry for as reasoned out by respondent company, it is so difficult to compete with the
industrial grants [sic] of the drug industry, among them being the petitioner herein, that it always is necessary
that the local drug companies should sell at much lower (than) the prices of said foreign drug entities.
Besides, foreign produce licensor can later on ask for an increase in percentage rate of royalty fixed by the
Director of Patents if local sales of license should increase. Further, in Price vs. UNILAB, the award of
royalty rate of 2.5% was deemed to be just and reasonable, to wit [166 SCRA 133]:
Moreover, what UNILAB has with the compulsory license is the bare right to use the patented chemical
compound in the manufacture of a special product, without any technical assistance from herein respondentappellant. Besides, the special product to be manufactured by UNILAB will only be used, distributed, and
disposed locally. Therefore, the royalty rate of 2.5% is just and reasonable.
It appearing that herein petitioner will be paid royalties on the sales of any products [sic] the licensee may
manufacture using any or all of the patented compounds, the petitioner cannot complain of a deprivation of
property rights without just compensation [Price v. UNILAB, L-82542, September 19, 1988].
We take note of the well-crafted petition submitted by petitioner albeit the legal milieu and a good number of
decided cases militate against the grounds posited by petitioner. In sum, considering the well-entrenched
jurisprudence sustaining the position of respondents, We reiterate the rule in Basay Mining Corporation vs.
SEC, to the effect that -

The legal presumption is that official duty has been performed. And it is particularly strong as regards
administrative agencies vested with powers said to be quasi-judicial in nature, in connection with the
enforcement of laws affecting particular fields of activity, the proper regulation and/or promotion of which
requires a technical or special training, aside from a good knowledge and grasp of the overall conditions,
relevant to said field, obtaining in the nations. The policy and practice underlying our Administrative Law is
that courts of justice should respect the findings of fact of said administrative agencies, unless there is
absolutely no evidence in support thereof or such evidence is clearly, manifestly and patently insubstantial.
[G.R. No. 76695, October 3, 1988, Minute Resolution; Beautifont, Inc., et al. v. Court of Appeals, et al., G.R.
No. 50141, January 29, 1988]
Its motion for reconsideration having been denied in the resolution[7] of 31 August 1995, petitioner filed the
instant petition for review on certiorari with the following assignment of errors:
I
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S DECISION VIOLATES
INTERNATIONAL LAW AS EMBODIED IN (A) THE PARIS CONVENTION FOR THE PROTECTION OF
INDUSTRIAL PROPERTY AND (B) THE GATT TREATY, URUGUAY ROUND, AND MUST ACCORDINGLY
BE SET ASIDE AND MODIFIED.
II
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S DECISION IS AN
INVALID EXERCISE OF POLICE POWER, ABSENT ANY SHOWING BY EVIDENCE OF AN
OVERWHELMING PUBLIC NEED FOR A COMPULSORY LICENSE OVER CIMETIDINE IN FAVOR OF
PRIVATE RESPONDENT.
III
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THAT THE BPTTT'S PRONOUNCEMENT
FIXING THE ROYALTY FOR AN INVOLUNTARY LICENSE AT 2.5% OF THE NET WHOLESALE PRICE IN
PHILIPPINE CURRENCY WAS RENDERED WITHOUT ANY FACTUAL BASIS AND AMOUNTS TO
EXPROPRIATION OF PRIVATE PROPERTY WITHOUT JUST COMPENSATION AND IS IN VIOLATION OF
THE CONSTITUTIONAL RIGHT TO DUE PROCESS.
IV
THE HON. COURT OF APPEALS ERRED IN NOT HOLDING THE BPTTT'S ACTION WAS RENDERED
NULL AND VOID FOR FAILURE OF PRIVATE RESPONDENT TO AFFIRMATIVELY PROVE THE
JURISDICTIONAL FACT OF PUBLICATION AS REQUIRED BY LAW.
We resolved to give due course to the petition and required the parties to submit their respective
memoranda, which they did, with that of public respondent filed only on 7 February 1997.
After a careful perusal of the pleadings and evaluation of the arguments adduced by the parties, we find this
petition to be without merit.
In its first assigned error, petitioner invokes Article 5 of the Paris Convention for the Protection of Industrial
Property,[8] or Paris Convention, for short, of which the Philippines became a party thereto only in 1965.[9]
Pertinent portions of said Article 5, Section A, provide:
(2)
Each country of the union shall have the right to take legislative measures providing for the grant of
compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights
conferred by the patent, for example, failure to work.
(4)
A compulsory license may not be applied for on the ground of failure to work or insufficient working
before the expiration of a period of four years from the date of filing of the patent application or three years
from the date of the grant of the patent, whichever period expires last; it shall be refused if the patentee
justifies his inaction by legitimate reasons. Such a compulsory license shall be non-exclusive and shall not
be transferable, even in the form of the grant of a sub-license, except with that part of the enterprise or
goodwill which exploits such license.

It is thus clear that Section A(2) of Article 5 above unequivocally and explicitly respects the right of member
countries to adopt legislative measures to provide for the grant of compulsory licenses to prevent abuses
which might result from the exercise of the exclusive rights conferred by the patent. An example provided of
possible abuses is "failure to work;" however, as such is merely supplied by way of an example, it is plain
that the treaty does not preclude the inclusion of other forms or categories of abuses.
Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines adhesion to the Convention,
fits well within the aforequoted provisions of Article 5 of the Paris Convention. In the explanatory note of Bill
No. 1156 which eventually became R.A. No. 165, the legislative intent in the grant of a compulsory license
was not only to afford others an opportunity to provide the public with the quantity of the patented product,
but also to prevent the growth of monopolies.[10] Certainly, the growth of monopolies was among the abuses
which Section A, Article 5 of the Convention foresaw, and which our Congress likewise wished to prevent in
enacting R.A. No. 165.
R.A. No. 165, as amended by Presidential Decree No. 1263, promulgated on 14 December 1977, provides
for a system of compulsory licensing under a particular patent. Sections 34 and 35, Article Two, of Chapter
VIII read as follows:
SEC. 34. Grounds for Compulsory Licensing. -- (1) Any person may apply to the Director for the grant of a
license under a particular patent at any time after the expiration of two years from the date of the grant of the
patent, under any of the following circumstances:
(a)
If the patented invention is not being worked within the Philippines on a commercial scale, although
capable of being so worked, without satisfactory reason;
(b)
If the demand for the patented article in the Philippines is not being met to an adequate extent and
on reasonable terms;
(c)
If, by reason of refusal of the patentee to grant a license or licenses on reasonable terms, or by
reason of the conditions attached by the patentee to licensee or to the purchase, lease or use of the
patented article or working of the patented process or machine for production, the establishment of any new
trade or industry in the Philippines is prevented, or the trade or industry therein is unduly restrained;
(d)
If the working of the invention within the country is being prevented or hindered by the importation
of the patented article; or
(e)
If the patented invention or article relates to food or medicine or manufactured products or
substances which can be used as food or medicine, or is necessary for public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to the petitioner provided that he has
proved his capability to work the patented product or to make use of the patented product in the manufacture
of a useful product, or to employ the patented process.
(3) The term "worked" or "working" as used in this section means the manufacture and sale of the
patented article, of the patented machine, or the application of the patented process for production, in or by
means of a definite and substantial establishment or organization in the Philippines and on a scale which is
reasonable and adequate under the circumstances. Importation shall not constitute "working."
xxx
SEC. 35. Grant of License. -- (1) If the Director finds that a case for the grant is a license under Section 34
hereof has been made out, he shall, within one hundred eighty days from the date the petition was filed,

order the grant of an appropriate license. The order shall state the terms and conditions of the license which
he himself must fix in default of an agreement on the matter manifested or submitted by the parties during
the hearing.
(2) A compulsory license sought under Section 34-B shall be issued within one hundred twenty days from
the filing of the proponent's application or receipt of the Board of Investment's endorsement.
The case at bar refers more particularly to subparagraph (e) of paragraph 1 of Section 34 -- the patented
invention or article relates to food or medicine or manufactured products or substances which can be used
as food or medicine, or is necessary for public health or public safety. And it may not be doubted that the
aforequoted provisions of R.A. No. 165, as amended, are not in derogation of, but are consistent with, the
recognized right of treaty signatories under Article 5, Section A(2) of the Paris Convention.
Parenthetically, it must be noted that paragraph (4) of Section A, Article 5 of the Paris Convention setting
time limitations in the application for a compulsory license refers only to an instance where the ground
therefor is "failure to work or insufficient working," and not to any ground or circumstance as the treaty
signatories may reasonably determine.
Neither may petitioner validly invoke what it designates as the GATT Treaty, Uruguay Round. This act is
better known as the Uruguay Final Act signed for the Philippines on 15 April 1994 by Trade and Industry
Secretary Rizalino Navarro.[11] Forming integral parts thereof are the Agreement Establishing the World
Trade Organization, the Ministerial Declarations and Decisions, and the Understanding on Commitments in
Financial Services.[12] The Agreement establishing the World Trade Organization includes various
agreements and associated legal instruments. It was only on 14 December 1994 that the Philippine Senate,
in the exercise of its power under Section 21 of Article VII of the Constitution, adopted Senate Resolution No.
97 concurring in the ratification by the President of the Agreement. The President signed the instrument of
ratification on 16 December 1994.[13] But plainly, this treaty has no retroactive effect. Accordingly, since the
challenged BPTTT decision was rendered on 14 February 1994, petitioner cannot avail of the provisions of
the GATT treaty.
The second and third assigned errors relate more to the factual findings of the Court of Appeals. Wellestablished is the principle that the findings of facts of the latter are conclusive, unless: (1) the conclusion is
a finding grounded entirely on speculation or conjecture; (2) the inference made is manifestly absurd; (3)
there is grave abuse of discretion in the appreciation of facts; (4) the judgment is premised on a
misapprehension of facts; (5) the findings of fact are conflicting; and (6) the Court of Appeals, in making its
findings, went beyond the issues of the case and the same is contrary to the admissions of both the
appellant and appellee.[14] Petitioner has not convinced us that the instant case falls under any of the
exceptions. On the contrary, we find the findings of fact and conclusions of respondent Court of Appeals and
that of the BPTTT to be fully supported by the evidence and the applicable law and jurisprudence on the
matter.
Petitioners claim of violations of the due process and eminent domain clauses of the Bill of Rights are mere
conclusions which it failed to convincingly support. As to due the process argument, suffice it to say that fullblown adversarial proceedings were conducted before the BPTTT pursuant to the Patent Law. We agree
with the Court of Appeals that the BPTTT exhaustively studied the facts and its findings were fully supported
by substantial evidence.
It cannot likewise be claimed that petitioner was unduly deprived of its property rights, as R.A. No. 165 not
only grants the patent holder a protective period of two years to enjoy his exclusive rights thereto; but
subsequently, the law recognizes just compensation in the form of royalties.[15]
In Parke, Davies & Co. v. Doctors' Pharmaceuticals, Inc.,[16] we held:

The right to exclude others from the manufacturing, using, or vending an invention relating to, food or
medicine should be conditioned to allowing any person to manufacture, use, or vend the same after a period
of three [now two] years from the date of the grant of the letters patent. After all, the patentee is not entirely
deprived of any proprietary right. In fact, he has been given the period of three years [now two years] of
complete monopoly over the patent. Compulsory licensing of a patent on food or medicine without regard to
the other conditions imposed in Section 34 [now Section 35] is not an undue deprivation of proprietary
interests over a patent right because the law sees to it that even after three years of complete monopoly
something is awarded to the inventor in the form of bilateral and workable licensing agreement and a
reasonable royalty to be agreed upon by the parties and in default of such an agreement, the Director of
Patents may fix the terms and conditions of the license.
As to the fourth assigned error, we hold that petitioner can no longer assail the jurisdiction of the BPTTT,
raising this issue only for the first time on appeal. In Pantranco North Express, Inc. v. Court of Appeals,[17]
we ruled that where the issue of jurisdiction is raised for the first time on appeal, the party invoking it is so
barred on the ground of laches or estoppel under the circumstances therein stated. It is now settled that this
rule applies with equal force to quasi-judicial bodies[18] such as the BPTTT. Here, petitioner have not
furnished any cogent reason to depart from this rule.
WHEREFORE, the petition is hereby DENIED and the challenged decision of the Court of Appeals in CAG.R. SP No. 33520 is AFFIRMED in toto.

[G.R. No. 121267. October 23, 2001]

SO ORDERED.[9]

SMITH KLINE & FRENCH LABORATORIES, LTD. plaintiff-appellee, vs. COURT OF APPEALS and DANLEX
RESEARCH LABORATORIES, INC., defendant-appellant.
DECISION
KAPUNAN, J.:

In affirming the decision of the BPTTT, the appellate court held that the grant of a compulsory license to
private respondent for the manufacture and use of Cimetidine is in accord with the Patent Law since the
patented product is medicinal in nature, and therefore necessary for the promotion of public health and
safety.[10] It explained further that the provisions of the Patent Law permitting the grant of a compulsory
license are intended not only to give a chance to others to supply the public with the quantity of the patented
article but especially to prevent the building up of patent monopolies.[11] Neither did the appellate court find
the royalty rate of 2.5% of net sales fixed by the BPTTT unreasonable, considering that what was granted
under the compulsory license is only the right to manufacture Cimetidine, without any technical assistance
from petitioner, and royalty rates identical to that fixed by the BPTTT have been prescribed for the grant of
compulsory license in a good number of patent cases.[12] The Court of Appeals also ruled that contrary to
petitioners claim, private respondent complied with the requirement of publication under the Patent Law and
had submitted proof of such compliance.[13]

This petition for review on certiorari assails the Decision dated January 27, 1995 of the Court of Appeals in
CA-G.R. SP No. 33770[1] which affirmed the decision of the Bureau of Patents, Trademarks and Technology
Transfer (BPTTT) granting a compulsory license to private respondent Danlex Research Laboratories for the
use of the pharmaceutical product Cimetidine. Likewise assailed is the July 25, 1995 Resolution of the Court
of Appeals denying the motion for reconsideration filed by petitioner Smith Kline and French Laboratories,
Ltd.
Petitioner is the assignee of Letters Patent No. 12207 covering the pharmaceutical product Cimetidine,
which relates to derivatives of heterocyclicthio or lower alkoxy or amino lower alkyl thiourea, ureas or
guanadines. Said patent was issued by the BPTTT to Graham John Durant, John Collin Emmett and Robin
Genellin on November 29, 1978.[2]
On August 21, 1989, private respondent filed with the BPTTT a petition for compulsory license to
manufacture and produce its own brand of medicines using Cimetidine. Private respondent invoked Section
34 (1) (e) of Republic Act No. 165,[3] (the Patent Law) the law then governing patents, which states that an
application for the grant of a compulsory license under a particular patent may be filed with the BPTTT at any
time after the lapse of two (2) years from the date of grant of such patent, if the patented invention or article
relates to food or medicine, or manufactured substances which can be used as food or medicine, or is
necessary for public health or public safety.[4] The petition for compulsory license stated that Cimetidine is
useful as an antihistamine and in the treatment of ulcers, and that private respondent is capable of using the
patented product in the manufacture of a useful product.[5]
Petitioner opposed the petition for compulsory license, arguing that the private respondent had no cause of
action and failed to allege how it intended to work the patented product. Petitioner further stated that its
manufacture, use and sales of Cimetidine satisfied the needs of the Philippine market, hence, there was no
need to grant a compulsory license to private respondent to manufacture, use and sell the same. Finally,
petitioner also claimed that the grant of a compulsory license to private respondent would not promote public
safety and that the latter was only motivated by pecuniary gain.[6]
After both parties were heard, the BPTTT rendered a decision directing the issuance of a compulsory license
to private respondent to use, manufacture and sell in the Philippines its own brand of pharmaceutical
products containing Cimetidine and ordered the payment by private respondent to petitioner of royalties at
the rate of 2.5% of net sales in Philippine currency.[7]
Petitioner thereafter filed with the Court of Appeals a petition for review of the decision of the BPTTT, raising
the following arguments: (1) the BPTTTs decision is violative of the Paris Convention for the Protection of
Industrial Property; (2) said decision is an invalid exercise of police power; (3) the rate of royalties payable to
petitioner as fixed by the BPTTT was rendered without factual basis and amounts to an expropriation of
private property without just compensation; (4) the petition for compulsory license should have been
dismissed by the BPTTT for failure to prove the jurisdictional requirement of publication.[8]
On January 27, 1995, the Court of Appeals promulgated its Decision, the dispositive portion of which states:
WHEREFORE, the petition is DENIED, and the decision of the Bureau of Patents, Trademarks and
Technology Transfer is hereby AFFIRMED, with costs against the Petitioner.

Not satisfied with the appellate courts decision, petitioner filed a motion for reconsideration thereof as well
as a motion for the issuance of a temporary restraining order against private respondents sister company,
Montreal Pharmaceutical, Inc. to refrain from marketing a product similar to Cimetidine, but both motions
were denied by the Court of Appeals in its Resolution of July 25, 1995.[14]
Petitioner thus filed the present petition on September 15, 1995, with the following assignment of errors:
I. The respondent Court erred in upholding the validity of the decision of public respondent BPTTT which is
an arbitrary exercise of police power and is violative of international law.
II. The respondent Court erred in holding that compulsory licensing will not create a confusion that the
patented product is the brainchild of private respondent Danlex and not of petitioner.
III.Assuming that the grant of compulsory license is in order, the respondent Court still erred in holding that
the BPTTT decision fixing the royalty at 2.5% of the net wholesale price in peso does not amount to
expropriation of private property without just compensation.
IV.The respondent Court erred in finding that the jurisdictional requirement of publication in a newspaper of
general circulation for three (3) consecutive weeks has been complied with by private respondent Danlex.
[15]
While petitioner concedes that the State in the exercise of police power may regulate the manufacture and
use of medicines through the enactment and implementation of pertinent laws, it states that such exercise is
valid only if the means employed are reasonably necessary for the accomplishment of the purpose and if not
unduly oppressive.[16] According to petitioner, the grant of a compulsory license to private respondent is an
invalid exercise of police power since it was not shown that there is an overwhelming public necessity for
such grant, considering that petitioner is able to provide an adequate supply of Cimetidine to satisfy the
needs of the Philippine market. Petitioner also claims that the grant of a compulsory license to private
respondent unjustly deprives it of a reasonable return on its investment.[17] It argues further that the
provisions of the Patent Law on compulsory licensing contravene the Convention of Paris for the Protection
of Industrial Property[18] (Paris Convention), which allegedly permits the granting of a compulsory license
over a patented product only to prevent abuses which might result from the exercise of the exclusive rights
conferred by the patent,[19] or on the ground of failure to work or insufficient working of the patented
product, within four years from the date of filing of the patent application or three years from the date of grant
of the patent, whichever expires last.[20] Petitioner opines that the inclusion of grounds for the grant of a
compulsory license in Section 34 of the Patent Law other than those provided under the Paris Convention
constitutes a violation of the Philippines obligation to adhere to the provisions of said treaty.[21]

It is also contended by petitioner that the grant of a compulsory license to private respondent will allow the
latter to liberally manufacture and sell medicinal products containing Cimetidine without even extending to
petitioner due recognition for pioneering the development and worldwide acceptance of said invention, and
will unreasonably dilute petitioners right over the patent.[22]
Petitioner likewise asseverates that the rate of royalty fixed by the BPTTT at 2.5% of net sales is grossly
inadequate, taking into consideration its huge investments of money, time and other resources in the
research and development, as well as marketing of Cimetidine. It is further alleged that such rate has no
factual basis since the appellate court and the BPTTT relied solely on analogous cases and did not explain
how such rate was arrived at.[23]
Lastly, petitioner claims that the appellate court erred in ruling that private respondent had complied with the
requirement of publication of the notice of the filing of the petition for compulsory license because private
respondent failed to formally offer in evidence copies of the notice of filing of the petition and notice of the
date of hearing thereof as published and the affidavits of publication thereof. Thus, it says, the BPTTT did
not properly acquire jurisdiction over the petition for compulsory license.[24]
In its Comment to the Petition, private respondent adopted the reasoning of the Court of Appeals in the
assailed decision and prayed that the petition be denied for lack of merit.[25]
The petition has no merit.
The Court of Appeals did not err in affirming the validity of the grant by the BPTTT of a compulsory license to
private respondent for the use, manufacture and sale of Cimetidine. The said grant is in accord with Section
34 of the Patent Law which provides:
Grounds for Compulsory Licensing.(1) Any person may apply to the Director for the grant of a license
under a particular patent at any time after the expiration of two years from the date of the grant of the patent,
under any of the following circumstances:
(a) If the patented invention is not being worked within the Philippines on a commercial scale, although
capable of being so worked, without satisfactory reason;
(b) If the demand of the patented article in the Philippines is not being met to an adequate extent and on
reasonable terms;
(c) If, by reason of refusal of the patentee to grant a license or licenses on reasonable terms, or by reason of
the conditions attached by the patentee to licensee or to the purchase, lease or use of the patented article or
working of the patented process or machine for production, the establishment of any new trade or industry in
the Philippines is prevented, or the trade or industry therein is unduly restrained;
(d) If the working of the invention within the country is being prevented or hindered by the importation of the
patented article;
(e) If the patented invention or article relates to food or medicine or manufactured substances which can be
used as food or medicine, or is necessary for public health or public safety.
(2) In any of the above cases, a compulsory license shall be granted to the petitioner provided that he has
proved his capability to work the patented product or to make use of the patented product in the manufacture
of a useful product, or to employ the patented process.
(3) The term worked or working as used in this section means the manufacture and sale of the patented
article, of patented machine, or the application of the patented process for production, in or by means of a

definite and substantial establishment or organization in the Philippines and on a scale which is reasonable
and adequate under the circumstances. Importation shall not constitute working. (Emphasis supplied.)
The grant of the compulsory license satisfies the requirements of the foregoing provision. More than ten
years have passed since the patent for Cimetidine was issued to petitioner and its predecessors-in-interest,
and the compulsory license applied for by private respondent is for the use, manufacture and sale of a
medicinal product. Furthermore, both the appellate court and the BPTTT found that private respondent had
the capability to work Cimetidine or to make use thereof in the manufacture of a useful product.
Petitioners contention that Section 34 of the Patent Law contravenes the Paris Convention because the
former provides for grounds for the grant of a compulsory license in addition to those found in the latter, is
likewise incorrect. Article 5, Section A(2) of the Paris Convention states:
Each country of the union shall have the right to take legislative measures providing for the grant of
compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights
conferred by the patent, for example, failure to work.[26]
This issue has already been resolved by this Court in the case of Smith Kline & French Laboratories, Ltd.
vs. Court of Appeals,[27] where petitioner herein questioned the BPTTTs grant of a compulsory license to
Doctors Pharmaceuticals, Inc. also for the manufacture, use and sale of Cimetidine. We found no
inconsistency between Section 34 and the Paris Convention and held that:
It is thus clear that Section A(2) of Article 5 [of the Paris Convention] unequivocally and explicitly respects the
right of member countries to adopt legislative measures to provide for the grant of compulsory licenses to
prevent abuses which might result from the exercise of the exclusive rights conferred by the patent. An
example provided of possible abuses is failure to work; however, as such, is merely supplied by way of an
example, it is plain that the treaty does not preclude the inclusion of other forms of categories of abuses.
Section 34 of R.A. No. 165, even if the Act was enacted prior to the Philippines adhesion to the Convention,
fits well within the aforequoted provisions of Article 5 of the Paris Convention. In the explanatory note of Bill
No. 1156 which eventually became R.A. No. 165, the legislative intent in the grant of a compulsory license
was not only to afford others an opportunity to provide the public with the quantity of the patented product,
but also to prevent the growth of monopolies [Congressional Record, House of Representatives, 12 May
957, 998]. Certainly, the growth of monopolies was among the abuses which Section A, Article 5 of the
Convention foresaw, and which our Congress likewise wished to prevent in enacting R.A. No. 165.[28]
(Emphasis supplied.)
Neither does the Court agree with petitioner that the grant of the compulsory license to private respondent
was erroneous because the same would lead the public to think that the Cimetidine is the invention of private
respondent and not of petitioner. Such fears are unfounded since, as the appellate court pointed out in the
assailed decision, by the grant of the compulsory license, private respondent as licensee explicitly
acknowledges that petitioner is the source of the patented product Cimetidine.[29] Even assuming arguendo
that such confusion may indeed occur, the disadvantage is far outweighed by the benefits resulting from the
grant of the compulsory license, such as an increased supply of pharmaceutical products containing
Cimetidine, and the consequent reduction in the prices thereof.[30]
There is likewise no basis for the allegation that the grant of a compulsory license to private respondent
results in the deprivation of petitioners property without just compensation. It must be pointed out that as
owner of Letters Patent No. 12207, petitioner had already enjoyed exclusive rights to manufacture, use and
sell Cimetidine for at least two years from its grant in November, 1978. Even if other entities like private
respondent are subsequently allowed to manufacture, use and sell the patented invention by virtue of a
compulsory license, petitioner as owner of the patent would still receive remuneration for the use of such
product in the form of royalties.

Anent the perceived inadequacy of the royalty awarded to petitioner, the Court of Appeals correctly held that
the rate of 2.5% of net wholesale price fixed by the Director of the BPTTT is in accord with the Patent Law.
Said law provides:
Sec. 35. Grant of License.(1) If the Director finds that a case for the grant of a license under Section 34
hereof has been made out, he shall, within one hundred eighty days from the date the petition was filed,
order the grant of an appropriate license. The order shall state the terms and conditions of the license which
he himself must fix in default of an agreement on the matter manifested or submitted by the parties during
the hearing.
xxx
Section 35-B. Terms and Conditions of Compulsory License. (1) A compulsory license shall be nonexclusive, but this shall be without prejudice to the licensees right to oppose an application for such a new
license.
(2) The terms and conditions of a compulsory license, fixed in accordance with Section 35, may contain
obligations and restrictions both for the licensee and for the registered owner of the patent.
(3) A compulsory license shall only be granted subject to the payment of adequate royalties commensurate
with the extent to which the invention is worked. However, royalty payments shall not exceed five percent
(5%) of the net wholesale price (as defined in Section 33-A) of the products manufactured under the license.
If the product, substance, or process subject of the compulsory license is involved in an industrial project
approved by the Board of Investments, the royalty payable to the patentee or patentees shall not exceed
three percent (3%) of the net wholesale price (as defined in Section 33-A) of the patented commodity/and or
commodity manufactured under the patented process; the same rate of royalty shall be paid whenever two
or more patents are involved; which royalty shall be distributed to the patentees in rates proportional to the
extent of commercial use by the licensee giving preferential values to the holder of the oldest subsisting
product patent.

xxx
Under the aforequoted provisions, in the absence of any agreement between the parties with respect to a
compulsory license, the Director of the BPTTT may fix the terms thereof, including the rate of the royalty
payable to the licensor. The law explicitly provides that the rate of royalty shall not exceed five percent (5%)
of the net wholesale price.
The Court agrees with the appellate courts ruling that the rate of royalty payments fixed by the Director of
the BPTTT is reasonable. The appellate court, citing Price vs. United Laboratories,[31] ruled as such,
considering that the compulsory license awarded to private respondent consists only of the bare right to use
the patented invention in the manufacture of another product, without any technical assistance from the
licensor.[32] Furthermore, this Court had earlier noted in the Price case that identical royalty rates have
been prescribed by the Director of the BPTTT in numerous patent cases.[33]
There was thus no error on the part of the Court of Appeals in affirming the royalty rate fixed by the Director
of the BPTTT, since it was not shown that the latter erred or abused his discretion in prescribing said rate.
The rule is that factual findings of administrative bodies, which are considered as experts in their respective
fields, are accorded not only respect but even finality if the same are supported by substantial evidence.[34]
Finally, as to the alleged lack of jurisdiction of the BPTTT over the petition filed by private respondent for
failure to comply with the publication requirement under Section 35-F of R.A. No. 165, the Court holds that
petitioner is estopped from questioning the same since it did not raise the issue of lack of jurisdiction at the
earliest possible opportunity, i.e., during the hearings before the BPTTT.[35] The Court notes that petitioner
raised this contention for the first time when it appealed the case to the appellate court.
WHEREFORE, the petition is hereby DENIED for lack of merit and the Decision of the Court of Appeals is
hereby AFFIRMED.
SO ORDERED.